Pennsylvania has joined 7 other states in streamlining the process for creditors foreclosing on mortgages of vacant and abandoned properties with the goal of reducing blight in communities. Act No. 32 of 2018, known as the Vacant and Abandoned Real Estate Foreclosure Act (the “Act”) was introduced as House Bill No. 653 by Representative Kurt A. Masser (R – Columbia, Montour and Northumberland Counties). According to a House Republican press release, “[the Act] reduces the timeframe for foreclosure on abandoned properties by 240 days. The foreclosure process lasts from 300 to 540 days, during which time blighted properties continue to decay and deplete municipal resources.” The Act imposes minimal maintenance requirements on a creditor who exercises its right to possession during foreclosure, restricts the collection of sheriff’s commissions and limits attorney fees.
The mortgage foreclosure process includes: (1) obtaining a judgment in mortgage foreclosure based on a complaint filed in the court of common pleas of the county in which the real property is situate; (2) conducting a sheriff’s sale of the real property at which the foreclosing creditor usually is the successful bidder; (3) removal of personal property and renovating or maintaining the property and (4) resale of the property by the foreclosing creditor. Debtors may defend on the merits and for consumer due process reasons, in addition to filing of bankruptcy proceedings, sometimes repeatedly following dismissals. Assuming these procedures do not frustrate the foreclosing creditor, delays in this process are often attributable to inability to give simple notice due to the absence of the debtor, local court procedures for mandatory mediation, rescheduling of sheriff’s sales, and the need to remove and store personal property found on the real estate. The Act streamlines this process by: (a) eliminating mediation required by local rules, and (b) authorizing (i) service of notices at the last known address of the debtor, (ii) accelerated sheriff’s sale and service of writ of possession; (iii) entry by the creditor for pre-execution maintenance, and (iv) removal and disposal of personal property left on the premises.
The principal condition to obtaining a streamlined process is for the creditor to obtain a certification that the mortgaged property is vacant and abandoned. This certification can arise from a proceeding under the Abandoned and Blighted Property Conservatorship Act or under the Act by municipal or judicial certification. Municipal certification follows inspection by the local code enforcement officer (“Code Officer”) who determines that the property is vacant and abandoned, and notice of the determination and an opportunity for the owner or other obligor to present evidence at a hearing on the determination before the municipal board of appeals. Judicial certification follows the creditor filing in the court of common pleas a petition for rule to show cause why a certificate should not issue supported by affidavit of facts by the Code Officer or creditor or other adult with knowledge, service of the rule to show cause by streamlined procedures, response by the owner or other obligor on a designated form subject to verification, an order certifying the vacant and abandoned status in the absence of response to the rule or after a hearing on the merits.
Competent evidence of vacancy includes (1) vacancy in fact during two inspections at least 45 days apart; (2) posting the property after the first inspection with advice to respond to avoid adverse legal consequences; and (3) no response to the posted notice by the time of the second inspection. Competent evidence of abandonment is (a) vacancy and (b) at least three of the following indica: (i) multiple windows, doors or entrances are “boarded, unhinged, closed off, smashed in or are continuously unlocked,” (ii) property is stripped of copper or other metals, (iii) furnishings, personal property or fixtures have been removed, (iv) utility services to the mortgaged property are terminated or are to be established in the name of the creditor, (v) newspapers, circulars, flyers or mail has accumulated or the USPS has discontinued deliveries to the mortgaged property, (vi) “rubbish, rash, debris, neglected vegetation or natural overgrowth” has accumulated at the property, (vii) multiple municipal building or housing code violations exist at the property and have not been corrected in the prior year, (viii) written and signed statement by neighbors, delivery persons or the Code Officer indicate that the property is vacant and abandoned, (ix) “hazardous, noxious or unhealthy substances” have accumulated at the property and (x) the owner or obligor states that they have vacated or abandoned the property of intend to do so. Maintenance or corrective actions by the creditor or municipality do not negate the certification.
The effect of a certification of vacancy and abandonment streamlines foreclosure and execution. Such a certification in foreclosure “shall not be subject to mediation, conciliation, diversion or other program established by a local court to encourage resolution of owner-occupied residential mortgage foreclosures.” 68 P.S. §2306(a). Service of notice on the owner, obligor or former owner shall be by first class mail at the address specified by such person, failing which by delivery at the mortgaged property and posting conspicuously thereon. 68 P.S. §2306(b). On payment of a $500 expedited sale fee, the sheriff must schedule public sale within 60 days of filing the writ of execution and have the sheriff’s deed recorded within 30 days following the sale. That expedited fee is to be refunded if the time frames are not met or the sale is continued or postponed by another party. 68 P.S. §2306(c). On request of the creditor or purchaser and payment of an additional $200 fee, the sheriff must execute and deliver a writ of possession within 20 days after delivery to the sheriff and the sheriff must schedule the removal of the former owner’s personal property within 30 days following filing of the writ. This additional fee must be refunded if the time frames are not met or the expedited execution is postponed or continued by a party other than the purchaser. 68 P.S. §2306(d). The creditor or purchaser may enter the property with certification or consent of the owner or an obligor to inspect, maintain and repair the property without liability for trespass or damage unless resulting from the creditor’s gross negligence or willful misconduct. 68 P.S. §2306(e).
The Act requires certain maintenance by the creditor who exercises its right to possession during foreclosure. For mortgage loans insured by the Federal National Mortgage Association or the Federal Home Loan Mortgage Corporation, the creditor must comply with property maintenance requirements of the Federal Housing Administration. Other creditors must (i) care for the yard and exterior of a building, removing excess vegetation diminishing the value of surrounding properties, (ii) make reasonable efforts to prevent trespassers remaining on the property, (iii) prevent mosquito larvae from growing in standing water and infestations by other vermin and insects, and (iv) take reasonable measures to prevent conditions that “create a serious and imminent hazard to public health or safety.”68 P.S. §2306(f).
After the sheriff’s sale and relinquishment of possession, the former owner must remove all items of personal property from the mortgaged property. Failure of the former owner to remove that property from certified real property after the delivery of a sheriff’s deed or a deed in lieu of foreclosure and filing of a writ of possession, the purchaser may remove the former owner’s personal property as follows: (i) serve requisite notice on the former owner of the purchaser’s intent to remove personalty; (ii) conspicuously post the property with required notice, including the right of the former owner to notify the purchaser within 10 days of the former owner’s intent to remove the personalty; (iii) exercise ordinary care during that 10-day period; (iv) after the 10-day period sell the personalty and give the proceeds exceeding debtor’s obligations to the former owner by certified mail, or more likely, if no forwarding address is given by the former owner, hold the proceeds for 30 days and if unclaimed, retain the proceeds; and (v) if the purchaser issues a personalty removal notice to the former owner and thereafter holds the personalty on a site other than the mortgaged property, the former owner or occupant may remove the personalty from that other site within 10 days and if the former owner removes it between 10 and 30 days after purchaser’s notice of removal, the former owner shall pay the reasonable costs or removal and off-site storage.
The Act also modifies the Sheriff’s Fee Act as to sheriff’s commission and the Loan Interest and Protection Act (“Act 6”) as to creditor attorney fees whether or not the mortgaged property is certified vacant and abandoned. First, the sheriff’s commission is not due unless the mortgaged property is sold at the execution sale conducted by the sheriff. The sheriff is not entitled to its commission if the sale is stayed, postponed, cancelled or withdrawn due to bankruptcy, the mortgage is decelerated or paid current or paid in full due to loan modification or other reason. Mortgages subject to section 406 of Act 6 may accrue attorney fees that are reasonable and actually incurred. A party may request court review of those attorney fees. Pre-foreclosure attorney fees are limited to 0.1% of the base figure and may be charged to the residential mortgage debtor. No attorney fees may be charged before or during the 30-day notice provision under Act 6.
The Act balances rights of the owner, creditor and purchaser and provides economic benefit to the community. It could reduce crime and help maintain property values. According to Rep. Masser, “Studies show that these blighted properties tend to become prime locations for increased criminal activities, which compromises public safety. Further, the blighted properties are oftentimes physically hazardous, and are eyesores that eventually reduce the property value of other taxpaying households in the surrounding neighborhoods.” Governor Wolf approved the Act on June 19, 2018 and it will take effect 180 days thereafter.
© Robert J. Hobaugh, Jr. 2018